The government began considering measures to bail out the financially troubled Long-Term Credit Bank of Japan, on the belief that it will be unable to rehabilitate on its own, Kyodo News reported Friday, quoting government sources.
The move comes at a time when LTCB, one of the three long-term credit banks in Japan, is suffering from client cancellations of bond contracts amid worries about the bank’s financial standing, the sources told Kyodo.
Possible options include merging the LTCB with Nippon Credit Bank, another long-term credit bank now under a restructuring process, the sources said. Both LTCB and NCB categorically denied that merger talks are under way. A senior Finance Ministry official also denied that the ministry is taking any initiative in an LTCB bailout.
LTCB is encumbered with a mountain of problem loans. Many loans it offered to nonbank moneylenders during the heyday of the bubble economy in the late 1980s and early 1990s have since turned sour.
On Thursday, Moody’s Investor Services said it will downgrade its ratings for subordinated debts of LTCB and LTCB Finance. The two ratings were lowered to B1 from Ba1. The ratings service also said that the new ratings will remain under review for further possible downgrade.
LTCB share prices plunged to an all-time low of 95 yen Friday morning on the Tokyo Stock Exchange, down 31 yen from Thursday’s close. The Tokyo Stock Exchange later suspended trading in LTCB and NCB shares to allow investors to confirm the news report.
A plan under consideration includes a plan to transfer healthy credits from LTCB and NCB to their merged bank ,have the Resolution and Collection Bank take over problem loans and dispose of them with public funds to be injected through Deposit Insurance Corp., the sources said.
The Resolution and Collection Bank is a bailout organization created to take over problem loans from collapsed financial institutions.
In the case of the possible merger, deposits at LTCB and NCB and bank debentures issued by the long-term credit banks would be protected in full, the sources said.
LTCB issued a statement saying news reports that its operations were in jeopardy and that specific steps such as a merger with NCB were being contemplated were “totally groundless.”
It also dismissed as false the news that it was lagging behind in its disposal of nonperforming loans and that it was encountering a funding problem due to cancellations of its bank debentures.
At a news conference Friday evening, LTCB Vice President Takashi Uehara said the bank “is not in a serious situation.” LTCB’s financial position “is steadily improving,” he added.
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